Question 1

A goal of monetary policy and fiscal policy is to
A)offset the shifts in aggregate demand and thereby eliminate unemployment.
B)offset shifts in aggregate demand and thereby stabilize the economy.
C)enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.
D)enhance the shifts in aggregate demand and thereby increase economic growth

Accepted Answer

Both monetary policy and fiscal policy aim to stabilize the economy through offsetting shifts in aggregate demand. This means they try to control inflation and unemployment by adjusting the levels of government spending, taxation, and interest rates. The goal is to prevent the economy from experiencing drastic fluctuations and ensure steady economic growth. Option A is incorrect because neither policy aims to eliminate unemployment completely, but rather to keep it at a reasonable level. Option C is incorrect because creating fluctuations in output and employment is not a desirable outcome, but rather something to be avoided. Option D is incorrect because while both policies aim to promote economic growth, their primary objective is stability.

Question 2

The Federal Open Market Committee is ​
A)​the group at the Federal Reserve that sets monetary policy.
B)​in charge of tax collection.
C)​the group that sets the amount of government spending.
D)​the group that reviews income assistance programs.

Accepted Answer

The Federal Open Market Committee is the group at the Federal Reserve that sets monetary policy, specifically the target federal funds rate. They use tools such as open market operations to influence the money supply and maintain price stability.

Question 3

Fiscal policy is determined by
A)the president and Congress and involves changing government spending and taxation.
B)the president and Congress and involves changing the money supply.
C)the Federal Reserve and involves changing government spending and taxation.
D)the Federal Reserve and involves changing the money supply.

Accepted Answer

Fiscal policy is determined by the president and Congress and involves changing government spending and taxation to influence the economy.

Quiz 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

A goal of monetary policy and fiscal policy is to

The Federal Open Market Committee is ​

Fiscal policy is determined by

The Federal Open Market Committee is